Investors are smelling blood on the water for the weaker European Union countries. With Greece, Portugal, Ireland and Spain in the cross-hairs, it doesn’t look good. Standard & Poors has been reviewing their debt situation and they have been downgrading accordingly. In my, Greece has a large bond payment coming up and investors are skeptical they will be able to pay it back. They are essentially paying credit card rates (10-15%+) for borrowing funds. Germany’s Chancellor is correct that if the EU and IMF do not step in and support Greece, their failure will be the catalyst to bring the world economy down again.
European Central Bank and IMF officials are negotiating a three-year fiscal authority plan with Athens as a condition to release emergency loans to debt-stricken Greece.
“I think the handling of the Greece case shows that everyone knows we cannot allow the same situation with countries as with Lehman Brothers,” she told a news conference.
Earlier, IMF Managing Director Dominique Strauss-Kahn said it was impossible to give any details on what would be finally agreed with Greece until the talks with Athens were concluded. He declined to say how much aid could be released.
Analysis: This is the contagion and it is spreading. We will see world markets sell-off and then U.S. government and corporate bonds will rise as investors will seek a safe haven…again. This means that the U.S. dollar will rally hard and gold will spike and then stabilize. Oil will most likely decline if these fears continue and that affects demand.